It's time to move pricing out of the back office and into the front office, which is becoming easier to achieve as customer relationship management (CRM) application vendors add more sophisticated pricing functionality to their product suites.
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How a company distributes pricing information internally has traditionally been considered a back-office function. After all, these are the applications that generally calculate the necessary prices, shipping charges, and taxes to create the invoices that are submitted to the purchaser for payment. In addition, with the exception of marketing, the functional groups that are responsible for a company's pricing strategy are more closely aligned to the back office. This leaves the front office with the responsibility of having to extract pricing information and distribute it themselves, which often leads to the development of a vast array of price-list reports and spreadsheets.
These islands of pricing information create a host of problems: increased administrative costs, inconsistent and inaccurate pricing, inability to rapidly respond to changing market conditions, and decreased pricing flexibility.
The best solution to these problems is to move pricing out of the back office and into the front office, which is becoming easier to achieve as customer relationship management (CRM) application vendors add more sophisticated pricing functionality to their product suites. Customer-centric organizations have integrated their pricing engine into their CRM application and have experienced many benefits. Here are five key benefits why you should consider moving your pricing functions to the front office:
Reduces sales cycles and improves cash flow by giving your sales agents the information they need to quickly and accurately quote an order from a single, consistent source.
When customers are ready to buy, the sales agent needs to have the tools to quickly provide an accurate quote for valid products to be delivered by a reliable promise date. Sales agents spend too much time on administrative tasks such as reviewing catalogs, consulting with sales support, searching spreadsheets or duplicating order entry. This time could be better spent on getting the product to the customer faster, or selling the product to more customers.
Providing sales agents with the ability to configure and quote an order in real-time via a single CRM application enables a whole new set of capabilities: customer-focused product configuration rules can be enforced and dynamic pricing can be applied, shipping charges and taxes can be calculated and a specific promise date can be confirmed and guaranteed; all this without having to travel back to the office or requiring dual-entry ("swivel-chair" integration) to other systems.
Sales agents that spend time handling complex orders using multiple systems have less time to spend on new orders and generating new business. A single system gives them more time for these activities as well as other customer service related activities such as order management and issue resolution. This reduces the amount of time between when an order is placed and when it is delivered, thus improving cash flow.
Improves margins by enabling dynamic pricing based on various CRM components such as customer profiles, product attributes and market segments.
Simply knowing who your best and most profitable customers are does not guarantee a successful CRM strategy. Programs and policies should be implemented that target highly desirable customers and provide incentives for them to increase their sales volumes. For example, account profile information such as membership in a buying club, being a competitor's top customer, or belonging to a target industry may trigger discounts or promotional benefits that encourage a prospect to become a long-lasting customer.
On the other hand, belonging to a low-volume, high-cost customer segment group may trigger price premiums that encourage the customer to either purchase more high-margin products or migrate to a competitor.
Establishing pricing rules dependent upon product attributes may also help raise margins. For example, if sales of a product in the color red are outpacing sales of the same product in blue, price premiums may be added for the red product while price discounts could be added for the blue product. This would ensure that the optimal price is charged for each to balance margin targets with inventory goals.
Knowing your customer's previous purchasing history or comparing a purchaser's profile to similar customers allows you to use up-sell and cross-sell techniques that steer them toward products with higher margins and those that encourage a more long-term buying pattern.
Lowers administration costs by using one system to deliver consistent pricing across all channels (Internet, field sales, telesales/call center and channel sales partners).
Using multiple pricing and order management systems for each of your selling channels increases implementation, administrative, maintenance, and upgrade costs. By distributing pricing logic through one repository, these costs can be significantly reduced while ensuring that your prices are applied consistently throughout your organization.
However, this approach doesn't just reduce costs and ensure consistency. By deploying a single pricing engine, changes only need to be made once. This allows an organization to adapt quickly to changing market conditions by making them more flexible and nimble.
Reduces accounts receivables problems upfront by enforcing pricing rules during order entry, reducing invoicing errors and disputes.
Customers are demanding more product options to allow them to customize purchases to their exact requirements. This has led to more complex product offerings that require sophisticated product configuration and pricing models. Without the appropriate tools, sales agents may promise products with options that cannot be delivered, provide inaccurate quotes, or configure a product that doesn't meet the customer's expectations. This can result in cancelled orders or significant order reconfiguration.
Delays due to missed deadlines, reorders caused by incomplete sales forms, or lost sales because of cancellations are costly and can damage a once-solid customer relationship.
Resolving product configuration and pricing abnormalities at the time the quote is provided improves order entry compliance and reduces the likelihood of invalid orders reaching the order fulfillment system.
Reduces integration costs between your CRM and back-office systems.
By joining marketing, customer, and product information together with product configuration and pricing rules, you can reduce the number of your cross-application integration points.
Moving your pricing processes from the back office into your CRM systems also decreases the frequency of round-trips your data must take to fulfill an order since less back-and-forth communication is required among the various systems before the order is approved.
Other pricing components that are tied into the back-office can be integrated with your CRM pricing engine. These include those systems that calculate delivery charges and taxes and provide credit card authorization.
CRM isn't just about sales force automation, customer loyalty, or 360-degree customer views. It's also about the processes that support those ideas. Pricing is a frequently overlooked and underappreciated component of CRM strategies. However, pricing provides the framework to build and sustain healthy and satisfying customer relationships by enabling smooth, consistent and effective business transactions that are mutually beneficial. Joining CRM and pricing can positively affect your bottom line by improving cash flow, increasing margins, lowering administrative and integration costs and reducing aged receivables.
About the Author
David Bradford is a CRM practice manager for Plutus Enterprises.